Economics in one Lesson

Economics in One Lesson

By Henry Hazlitt

Dan Gardner

History of Economics 360-001

Dr. Smith

March 8, 2005

Economics in One Lesson

By Henry Hazlitt

Henry Hazlitt's book, Economics in one lesson, brings to perspective numerous topics that are mainstream issues in the economy today. His book breaks down in detail specific concepts that have their effects on the economy. Hazlitt explains topics such as war and the expenses, the tariff system, and productivity and the minimum wage laws.

One concept Hazlitt emphasized on was how economics was viewed for temporary needs, versus more permanently viewed.

"In addition to theses endless pleading of self-interest, there is a second main factor that spawns new economic fallacies every day. This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences" (Hazlitt p15-16).

This simple fact that Hazlitt brought up is the dominating factor that separates good and bad economics. A good economist will look at the effects a certain policy will have on all groups, while a bad economist will only see the effects that a policy will have on a particular group. This ties in with the long-run effects because if a group is only looking at how a policy will affect itself then in the future another group that was affected could lose their business because of the way the first group viewed a policy. For example if a clothing company decides to increase revenues by selling more products at a lower price, it will cause the company that has to supply the materials for the shirt to have to increase the amount of materials they need to use in order to keep up with the sales the clothing company makes. If the shirt company acted in the best interest of all the groups they would make sure the company that is supplying the materials is able to increase production instead of making the decision on their own. The bad economist believes that tomorrow is not as important as what is at hand today. "Nine-tenths of the economic fallacies that are working such dreadful harm in the world today are the result of ignoring this lesson. Those fallacies are stem from one of two central fallacies or both: that of looking only at the immediate consequences of an actor o proposal, and that of looking at the consequences only for a particular group to the neglect of other groups" (Hazlitt p17). It is also important to realize that some of the consequences may be evident in a few months or it could be evident in a couple years. The shirt companies' raising revenues might not affect the supplier immediately, but it does not change the fact that it is not affected at all.

When Hazlitt wrote about how war affects economics, he wrote about this subject brilliantly. The best example Hazlitt used had to do with the broken window. He said that if a window breaks for a certain business, it is better for the economy. If a window is broken for a certain business and takes a few thousand dollars to fix, it would be a small price to pay to increase the economy. The economy would give jobs and pay wages to the repair the window. Hazlitt's point is that sometimes there is a blessing that comes out of destruction. For example, the Civil War had a positive affect on economics. During and after the war, there was tremendous growth in industry, railroads, and others. But this came at the price of destroying land and life as well. "The war, in short, changed the postwar direction of effort; it changed the balance of industries; it changed the structure of industry" (Hazlitt p27). The reason for this growth is because it takes a lot of energy and a lot of stimulation to get the economy back where it was before the war, because the money that the government used to supply the war came from certain industries. A commodity had to be subtracted in order to supply the needs for the war. After the war, it is a great chance that commodity will become a demand because it will be presented as going back on the market. This does not mean that a great economy is built because of a war. The economy balances out just after a war takes place. When two countries go to war, land is destroyed, buildings need to be replaced, and in turn money is what is sought so the rebuilding process can begin. It does not necessarily create more jobs, but more money is being used to support what has been lost than what has been gained. What happens after the job is done before the war and after the war? Jobs are again lost and the economy is again at the same point from where they started before the war began. A case can be made for the Civil War, in that industry had boomed due to the fact of the war. But think of all the things that were lost in the process. Many families in the south were reduced to poverty, land was destroyed and unusable for a time, agriculture met a sharp decline, but in the long run things would be better for the people in the south.

Hazlitt also makes a good point when he mentions the fetish of full employment. "We cannot continuously have the fullest production without full employment. But we can very easily have full employment without full production" (Hazlitt p71). This statement is very true. Just because everyone has jobs it does not mean that everyone will be making what they are actually worth. Full employment only means that everyone will be working. Just because some people work in a sweat shop does not mean they are paid for the quality of their work. The government should not push to end unemployment of have the fetish for full employment; this would really just create a hard working poor person because they would not get paid that much. "The economic goal of an nation, as of any individual, is to get the greatest results with the least effort" (Hazlitt p71). If a business had to employ more then they need, they would have to cut wages to make sure everyone received payment. Many institutions have fully employment, but that does not mean that it is in the best interest of their employees. Prison chain gangs have full employment just as slaves have full employment. The truth is that the employees under this status probably have a better chance for making more money